Jun 30th: Navigating Legal Tech Funding, AI Advancements, and Cyber Threats

Welcome to Law Tech Daily - the podcast that answers "what happened in legal tech this week?". Join us each Monday, Wednesday, and Friday as we dive into the exciting world of legal tech news. Don't forget to hit that subscribe button to stay up-to-date on the latest episodes! In today's episode, we'll discuss the funding round for DraftWise, concerns about using personal data by OpenAI and Microsoft, the optimism of Australian law firms despite recession threats, and the UK Cyber Threat Report by NCSC.

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Let's dive in!

We have seven key stories today, before we review them let's catch up on what happened in legal tech this week.

The legal technology landscape is undergoing continual evolution, placing a strong emphasis on cybersecurity, AI integration, and data management. In order to assist the legal sector in safeguarding against cyber attacks, the UK's National Cyber Security Centre (NCSC) has recently released a Cyber Threat Report, providing valuable guidance. Meanwhile, LexisNexis has introduced an AI tool called Agreement Analysis, which simplifies transactional agreements, and DraftWise has successfully secured five million dollars in funding to enhance its AI platform for contract drafting.

The integration of AI into the realm of legal technology represents a prominent trend. LexisNexis's Agreement Analysis employs AI to extract and propose alternative clause language from documents. Similarly, DraftWise utilizes AI to facilitate more efficient contract drafting and review processes for attorneys. Nevertheless, concerns surrounding the use of AI have also surfaced, as evidenced by a class-action lawsuit against OpenAI and Microsoft, alleging violations of copyright and privacy laws.
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Cybersecurity remains a crucial concern for the legal sector. The NCSC's Cyber Threat Report emphasizes the necessity for law firms to fortify themselves against cyber attacks. Furthermore, law firms face challenges in managing data effectively, as unnecessary data storage is estimated to cost UK law firms approximately three point seven billion British pounds each year.
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The increased reliance on technology within the legal sector presents a myriad of opportunities and challenges. While AI tools offer the potential to streamline processes and enhance efficiency, they also raise important legal and ethical considerations. The lawsuit against OpenAI and Microsoft underscores the urgency for clear guidelines and regulations pertaining to the deployment of AI.

Legal professionals must skillfully navigate these challenges. Adopting a forward-thinking approach, prioritizing robust cybersecurity measures, and ensuring the ethical use of AI is imperative for success in this rapidly evolving landscape.
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Let's now move on to our key stories.

US contract drafting startup, DraftWise, has successfully raised five million dollars in funding, with the round led by EarlyBird, and participation from strategic investors, including global law firm Orrick Herrington & Sutcliffe. DraftWise is a "Y Combinator" graduate from 2020 and a member of MDR LAB's Improve program. The company offers a platform that leverages artificial intelligence to assist attorneys in drafting and reviewing contracts more efficiently. By integrating with document management systems and other knowledge management resources, DraftWise is able to apply machine learning to law firm data, ensuring enhanced accuracy and precision.

With this latest funding round, DraftWise has plans to develop its generative AI platform further. The main objective is to continuously improve client outcomes while expanding its reach within the legal industry. By harnessing the power of AI, DraftWise aims to enhance the efficiency of contract drafting and review processes, allowing law firms to save time and resources. As a result, attorneys can focus on more complex legal matters that require their expertise.

Continuing on with AI-related news, a recent lawsuit has been filed by a California law firm against OpenAI and Microsoft. The lawsuit alleges that these companies have used scraped data from millions of internet users without their consent. This development raises concerns about the unauthorized use of data by AI models and brings attention to the control that developers have over evolving software.

The lawsuit specifically accuses OpenAI of unlawfully collecting personal data to train its AI products, such as ChatGPT. Comparable allegations have been made against Clearview AI, a facial recognition company. The legal action encompasses multiple counts against OpenAI, Microsoft and their alleged violations of privacy and consumer protection laws.

As the legal battle between the involved parties unfolds, this case has the potential to shed light on the ethical and legal considerations surrounding the use of personal data in AI applications. The outcome may influence the future of AI development and its accountability toward protecting users' privacy.

This lawsuit stands as a reminder that advancements in technology must be accompanied by responsible data practices. It underscores the importance of transparency, user consent, and adherence to privacy laws in the development and deployment of AI technology.

According to a survey conducted by Ari Kaplan Advisors, general counsel predict a more aggressive litigation landscape in the future as a result of economic uncertainty. However, the decision to pursue meritorious cases will heavily rely on the company's financial position. GCs are eager to collaborate with law firms in order to reduce costs and explore alternative financing methods, such as litigation funding. The survey also highlights the ongoing challenge faced by many law firms that still adhere to the billable-hour model, making it difficult to collaborate on alternative financing approaches. Liquidity is identified as a crucial factor in pursuing claims, leading GCs to involve outside law firms or third-party funders to share risks and control the pace of recoveries. The survey reveals a lack of expertise in quantitative modeling among GCs and their outside counsel, which hampers the decision-making process. In general, GCs are actively seeking ways to transform their departments into profit centers and are expecting improved communication from law firms when it comes to discussing legal finance options.

Law firms are increasingly facing risks and incurring unnecessary expenses due to the excessive amount of data they retain. According to a survey conducted in April 2023, a significant portion of the content stored by UK private sector IT leaders has no valid reason for being kept, costing approximately three point seven billion British pounds annually. This financial burden is exacerbated by the current climate crisis and rising energy costs. Furthermore, the American Bar Association's cybersecurity survey in 2021 highlighted that only 53% of respondents had a policy in place to effectively manage data retention, signaling room for improvement in law firms' information governance practices.

The adoption of cloud-based data storage and the associated rising storage costs further contribute to the financial strain faced by law firms. Additionally, the accumulation of excess data places law firms at a higher risk of cyberattacks. Regulatory compliance is also a crucial concern as storing data beyond the required retention period can result in fines and reputational damage.

To address these challenges, law firms must take a methodical and pragmatic approach. This includes establishing a committee responsible for data management, gaining a comprehensive understanding of the data they possess, developing a well-defined retention and disposition policy, executing the policy effectively, and making informed decisions regarding data destruction.

By implementing these strategies, law firms can mitigate risks, reduce unnecessary expenses, improve their information governance practices, and enhance cybersecurity resilience. Conquering the data mountain is imperative for law firms to thrive in today's rapidly evolving digital landscape.

We have two more report updates for you.

The New Law CLE Australian Legal Industry Report 2023 presents a positive outlook for small and medium-sized law firms in Australia, despite potential recession threats and reduced spending. According to the report, a mere 12% of respondents anticipate a decline in revenue, with close to a third anticipating growth exceeding 10%. Smaller legal practices, however, grapple with several challenges, including time constraints, heightened client expectations, and limited staff and resources.

What stands out in the report is the increasing emphasis on marketing as the primary investment priority for law firms in 2023. This shift signifies a recognition that law firms must view themselves as traditional businesses, investing in building their brand and generating leads. Another notable finding is the departure from billable hour pricing models, as more firms adopt fixed fee structures. This response reflects the trend towards the commodification of legal services and the quest for improved client retention.

Moreover, the report sheds light on pricing trends across different areas of law. Corporate law and intellectual property law appear to yield the highest hourly rates, while finance law maintains above-average profitability. Additionally, the report underscores the role of legal technology in the industry, with respondents expressing that technology enhances both work enjoyment and profitability.

Next up.

The UK Cyber Threat Report, described as a must-read for those in the legal sector, has been recently released by the National Cyber Security Centre (NCSC). With a focus on the UK Legal Sector, the report sheds light on the wide range of threats encountered by this specific industry. Among these threats are the notorious ransomware attacks conducted for financial gain, as well as the intellectual property theft perpetuated by nation-states.

The 2023 edition of this report, which incorporates inputs from the NCSC and various industry partners, provides a comprehensive overview of the cyber risks faced by law firms. It serves as a vital resource for raising awareness about these risks. Andrew Powell, the Chief Information Officer of Macfarlanes, underscored the significance of this report for the executive teams and IT professionals within law firms. By offering guidance on bolstering resilience against cyber attacks, the report equips its readers with essential knowledge and strategies.

For individuals working in the legal sector with concerns pertaining to cyber threats, this report is deemed essential reading. Its comprehensive and authoritative nature empowers legal professionals to combat and mitigate cyber risks proactively. With the evolving landscape of cyber threats, staying up-to-date with the latest insights and best practices through reports like this is crucial for safeguarding sensitive data and maintaining the trust and security of clients and stakeholders.

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